SEC Wins Latest Test of ALJ Constitutionality With Split DC Circuit Ruling

Jun 27 2017 | 12:31am ET

The U.S. Securities and Exchange Commission has won the latest battle in the long-running debate over whether its in-house administrative law judges are constitutional.

In a divided 5-5 ruling, the U.S. Court of Appeals for the District of Columbia rejected a claim made by former investment advisor Raymond Lucia, who was banned for life from the financial industry in 2013, that the SEC’s administrative law judges were in fact officers under the Constitution and whose appointments must be made in accordance with the Appointments Clause. The SEC, meanwhile, argues that the judges are merely employees of the SEC who can be hired by anyone and whose decisions are reviewable by the agency.

The ruling almost guarantees involvement of the U.S. Supreme Court, as Monday’s ruling directly contradicts one in the 10th U.S. Circuit Court of Appeals in Denver in May that held the SEC’s judges are, in fact, “inferior officers” under the Constitution and must be appointed as such by the president, the head of a federal agency or a court.

Use of the in-house courts has risen sharply since the financial crisis and the passage of the 2010 Dodd-Frank financial reform law. The SEC argues the system speeds up case resolution: critics have called the process inherently flawed, biased and unfair – not to mention unconstitutional. 


In Depth

Q&A: Star Mountain's Brett Hickey On Investing In 'The Growth Engine Of America'

Sep 22 2017 | 5:06pm ET

Lower middle-market companies form the economic fabric of the nation, but they can...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Don’t Overlook These 6 Hybrid Cloud Concerns

Sep 14 2017 | 6:27pm ET

Cloud-based technology solutions have made tremendous inroads into the alternative...